U.S. Housing Can Withstand Rate Rise
November 29 2015 - 12:49PM
Dow Jones News
By Steven Russolillo
The U.S. Federal Reserve isn't exactly poised to crash the house
party.
Low interest rates, steady job gains and improving household
finances have helped bolster the housing recovery. And even as
2015's strong first half has given way to some wobbly months of
late, housing fundamentals appear primed to withstand a looming
U.S. rate increase.
Monday's report on pending home sales, a key tool in measuring
buying momentum, should confirm that trend. Tracked by the National
Association of Realtors, it measures purchases of previously owned
homes and is based on signed contracts, making it a leading
indicator of sorts for the broader housing market. Home sales
typically close within a couple months after signing.
While pending home sales hit a nine-year high in May, they have
slipped on a monthly basis in three of the past four months.
Economists polled by The Wall Street Journal expect a 1.5% rise in
October from a month earlier. And the year-over-year trend remains
positive.
The recent stretch evokes fears of what transpired in mid-2013,
following the so-called taper tantrum. Back then, interest rates
spiked and home sales slumped as the Fed indicated it could start
to cut back on monetary stimulus.
The average interest rate for a 30-year fixed-rate mortgage
surged over a percentage point from April through August in 2013.
And pending home sales peaked that June before falling 12% by
year's end. Only this February did pending home sales bounce back
to June 2013 levels.
Even so, the taper tantrum caught markets by surprise. Today,
there is little shock value in the expected rate increase. And
housing conditions remain favorable ahead of the Fed's big move.
The average 30-year fixed-rate mortgage was 3.8% in October, the
lowest since April, according to Freddie Mac.
The loosening of credit conditions also has helped the housing
market. Fannie Mae and Freddie Mac cut down-payment standards late
last year. The Federal Housing Administration earlier this year
reduced the premium it charges for insuring mortgages.
Higher rates are coming, perhaps in a few weeks. Don't expect
them to take an immediate toll on housing.
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
November 29, 2015 13:34 ET (18:34 GMT)
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